iGate CEO: Outsourcing does more good than harm

Indian outsourcing firm iGate defends itself and promises to create over 400 Canadian jobs as it gets involved in controversial foreign worker hiring practice involving the country's biggest bank.

Amid news of a Canadian government probe into a controversial outsourcing deal with the country's biggest bank, iGate has promised to create over 400 jobs in Canada by 2015.
iGate promises to create over 400 Canadian jobs in the next 18 months.

Last week the Canadian Broadcasting Channel reported the Royal Bank of Canada will fire 50 staff from its investor services division by the end of April. The jobs will eventually be sent from Toronto to Bangalore, where iGate hosts an RBC Offshore Development Centre.

Reuters later reported the Canadian Government--already reviewing the country's temporary foreign worker visa programme--would investigate the deal for improper practices.
On April 11, during an earnings call, iGate CEO Phaneesh Murthy defended the company.
"Now, I don't know exactly how this balance works out, but overall I've always believed that it has helped economies and helped countries more than hurt economies and hurt countries," Murty told analysts on the call.
He added iGate will create 400 to 500 jobs in Canada over the next 15 to 18 months. "Now, is that all good for the Canadian economy? I believe it is. Is some of the work going offshore? Yes it is," he said.
"Obviously, we have been quite in the midst of all of this relatively negative publicity, but we're also seeing lot of articles coming out in support of outsourcing , and the fact that they would like banks to be more efficient and do things at a lower cost point and so on and so forth," said the CEO.

Q1 profit up 40 percent

For the first quarter of 2013, IT outsourcing firm iGate saw net income rise 44 percent to US$34.8 million, in a statement Thursday. Revenue rose to US$274 million from US$263 million over the same period.

On the earnings call, iGate CFO Sujit Sircar, said gross profit margin declined by 2.5 percent over the last two quarter, to 38.1 percent.
This was primarily due to:
  • Visa application costs of $4.5 million.
  • Increased payroll cost mainly attributed to the net head count increase of 600 on delivery.
  • Increased travel costs from transition-related expenses.
Between 2012 and 2013, the company's adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) dropped 4 percent from US$68.3 million to US$65.5 million--incuring an additional US$10 million loss compared to the previous year.

For the quarter, it added ten new customers to end with 312 customers in Q1 2013: including a Fortune 500 U.S. insurance company, European global financial services provider, and an American luxury footwear and apparel manufacturer.

Sircar said the company's biggest customer accounted for 12.6 percent of total revenue.

Murthy, said in a statement: "We have made significant investments in sales, marketing and branding in our markets. The pace at which we are adding quality new clients is satisfying."